NY Income Tax Ruling Leaves Door Open for Online Seller Lawsuits

A recent New York appellate decision upholding the state’s additional income tax obligations on out-of-state online retailers isn’t likely to be the last challenge to that regulation, or to similar rules adopted by other states.

The New York Supreme Court, Appellate Division, Third Department, ruled May 7 that the Department of Taxation and Finance’s regulation expanding the reach of its business corporation franchise tax isn’t preempted by Public Law 86-272, a federal law that prohibits states from imposing income taxes on out-of-state businesses that only solicit sales of tangible personal property in the state.

“The decision leaves open a ...